Sunday newspaper round-up: UK QE II, ARM, China, ASOS, BoE

18th Sep 2011 17:21

What will a second round of quantitative easing (QE II) do for equities, gilts and Sterling? asks Neil Hume in this Weekend's Financial Times. Well, both Goldman and Citi believe that QE II will centre on long dated public debt. In fact, Citi believes the Bank of England (BoE) could even end up buying up to £300bn of the stuff. Goldman, on the other hand, thinks the central bank ought to buy banks' debt directly, but doubts that it will do so. Credit Suisse sees sterling falling to between 1.45 and 1.50 versus the US dollar. Interestingly, it expects this to feed through to equities in so far as almost 80% of UK earnings are made overseas. More specifically, the London stock market outperforms 75% of the time when sterling weakens. Graham Secker at Morgan Stanley, however, is more dubious as regards the beneficial effects on equities. Thus, he points out that the seeming correlation between QE programmes and equities is coincidental. In reality part of the causality lies in that leading indicators were in the process of troughing around the time asset purchases started. Thus, for QE to be effective it must coincide with such an improvement; in 2009 it coincided with a fiscal boost and a restocking cycle. As well, Mr.Hume believes there may be question marks surrounding the effect of such policies on banks' profitability (if the yield curve flattens). Wintel (the 'term' describing what used to be a close-knit and winning relationship between Microsoft and Intel) has long since been superseded and relegated to the dustbin by nimbler and more innovative competitors such as Google or ARM. But to dismiss the capability of either of the former would be daft, argues The Economist in its latest weekly edition. Thus, "Intel is probably closing the power-consumption gap with ARM. Microsoft claims to have 450m users of Windows 7, the operating system's latest incarnation on PCs. Many of these, and people with older versions, may upgrade, especially if they can use the same system on all their devices, at home or at work." Of interest as well, the relationships within the tech sector may be changing. Google announced last week that future versions of Android will be 'tuned' for Atom, Intel's family of low-power processors. Phones with Intel inside should be on sale in the first half of next year."This has gone from a glint in someone's eye to a real company with a big project," said an unidentified 'source', referring to oil exploration outfit Rockhopper, to the Sunday Times newspaper. At a recent presentation the company said that the Sea Lion reservoirs hold as much as 350m barrels of recoverable oil, larger than anything found in the North Sea in the last decade. Furthermore, the company seems to have worked out how best to transport the oil once extracted. The company is now going 'cap in hand' to City bankers for £2bn in financing. The City, however, is concerned that Argentina could attempt to assert a new claim of sovereignty over the Falklands. Hence, senior officials from the Foreign Office have agreed to meet big investors in Falkland Islands oil explorers to reassure them the government is "fully committed to the defence" of the islands."Tesco is planning a new attempt to become Britain's biggest garden centre chain with a raid on a company built up by Sir Tom Hunter, the Scottish businessman. Lloyds Banking Group will this week formally kick-off the £300m sale of the Garden Centre Group, owner of the Wyevale and Blooms chains. (...) Tesco, which already owns the Dobbies Garden Centres chain, is believed to have registered an interest in the auction, which is being handled by advisers at Rothschild. However, sources close to the negotiations said that the supermarket giant may cherry-pick 15 to 20 prime sites rather than bid for the whole company," writes The Sunday Times. Cheng Siwei, head of Beijing's International Finance Forum and a former deputy speaker of the People's Congress, has warned at this year's World Economic Forum, in Dalian (China) that interest rate rises and credit curbs to cool overheating were inflicting real pain on thousands of companies used by local party bosses to fund the construction boom. "Everybody assumes that they will be bailed out by the central government if they default, but I disagree with this. It means that the people will ultimately pay the bill for it all, at a cost to the broader welfare," he has added, informs The Sunday Telegraph. Lord Waheed Alli, the Labour peer and chairman of ASOS, has sold nearly half of his £30m stake in online fashion retailer, reports the Sunday Telegraph. According to company filings, Lord Alli exercised an option to buy 750,000 ASOS shares at 12.67p last week, then immediately sold them at £19 a share - valuing the stake at £14.25m and netting Lord Alli £14.15m in the process. He still has 830,000 shares in the business, worth £15.7m. The transaction knocked more than 5% off ASOS' market value last Friday, but his move is thought to have been triggered after he lost his investment in Chorion, the media group, rather than a lack of confidence in the retailer. Nonetheless, the newspaper indicates that there are some concerns about the firm's buying talent, after a string of well-respected mid-ranking buyers left for rival retailers. Through the crisis, European taxpayers have bailed out first the banks, and then busted states. So it is little wonder that many governments are reluctant to consider either of the main options to end the euro-zone crisis: opening up the wallet (by enlarging the euro-zone rescue fund), or letting others borrow one's credit-card (issuing joint Eurbonds). (...) Jacek Rostowski, the Polish finance minister who holds the rotating presidency, said the EU was "very, very divided" on the issue (a financial transactions tax or FTT) when it was discussed in Wroclaw. (...) The resentment of bankers, and the desire to protect the taxpayer is understandable. But the grudging and erratic response of the euro zone's governments has been as much part of the problem as of the solution. The citizen will be placed at ever greater risk unless the crisis is tamed quickly. To do that, two destabilising feedback loops have to be broken. The first is between collapsing banks and collapsing treasuries; the other is between panicking markets and hesitating governments. An EU or euro-area FTT helps with neither. For now, it is a distraction - and could make things worse, writes The Economist in its latest weekly edition.Persuading Europe's political leaders to get a grip on the region's deepening sovereign debt crisis will be the focus of this week's meeting of the International Monetary Fund being held in Washington. (...) It will be attended by finance ministers from around the world, despite European leaders ignoring Mr Geithner's warning in Poland on Friday that unless they take action to tackle the debt crisis they face "catastrophic risk". However, according to a Reuters report yesterday, senior aides, at a meeting attended by the German finance minister, Wolfgang Schäuble, have been privately warning the politicians of a new credit crunch. They are also urging finance ministers to reinforce banks' capital. The EU document points the finger specifically at Germany and Spain for not helping their banks more, (...) even after their weaknesses were exposed by recent stress tests, says The Independent on Sunday. "The deputy governor of the Bank of England yesterday warned that the Eurozone's debt meltdown could trigger a Lehman Brothers-style crisis. Charlie Bean claimed the outlook for the UK economy has worsened in recent months, with events on the Continent making it even 'more worrying'. He said that if the Eurozone crisis is mishandled, Britain and the rest of the world faced the biggest shock since the collapse of US investment bank Lehman Brothers three years ago. (...) 'There is light at the end of the tunnel,' said Bean. 'It's a long tunnel, I won't dispute that.' He went on to admit that the deterioration in the economy could force the Bank to print more money in another round of quantitative easing. His comments came after Martin Weale, another member of the Monetary Policy Committee, warned that the risk of recession is growing," informs the Financial Mail on Sunday.AB